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Fitch Upgrades Salvadorian Banks after Sovereign Action; Outlook Stable
October 16, 2017 / 5:07 PM / in a month

Fitch Upgrades Salvadorian Banks after Sovereign Action; Outlook Stable

(The following statement was released by the rating agency) MONTERREY, October 16 (Fitch) Following its upgrade of El Salvador's sovereign rating, Fitch Ratings has upgraded the Long-Term Issuer Default Ratings (IDRs) of Banco Agricola, S. A. (Agricola) and Banco Davivienda Salvadoreno (Davivienda Sal) to 'B' from 'B-'. The Rating Outlook for both banks is Stable. Fitch has also upgraded Agricola's and Davivienda's Viability Ratings (VRs) to 'b-' from 'ccc', upgraded their Support Ratings to '4' from '5' and affirmed their Short-Term IDRs at 'B'. Fitch affirmed the national scale ratings of both banks and their respective local shareholders: Inversiones Financieras Banco Agricola (IFBA) and Inversiones Financieras Davivienda (IF Davivienda). A full list of rating actions follows at the end of this press release. On Oct. 6 Fitch upgraded El Salvador's Long-Term Local Currency IDRs to 'B-' from 'RD', its Long-Term Foreign Currency rating to 'B-' from 'CCC', and its Short-Term Local Currency and Foreign Currency ratings to 'B' from 'C'. The Outlook on the Long-term Local and Foreign Currency Ratings (IDRs) is Stable. In addition, Fitch upgraded the country ceiling to 'B' from 'B-'. For more information, see "Fitch Takes Rating Actions on El Salvador Following Local Law Securities Debt Exchange" at www.fitchratings.com KEY RATING DRIVERS IDRS AND SUPPORT RATINGS The IDRs and SRs of Agricola and Davivienda Sal reflect the potential support from their respective shareholders, Bancolombia, S.A. (Bancolombia; Long-Term IDR bbb/BBB/Stable) and Banco Davivienda, S.A. (Davivienda; bbb/BBB/Stable). In Fitch's view, the owners' commitment to their respective subsidiaries are sufficiently strong to allow them to be rated above the sovereign rating; however, the IDRs remain constrained at El Salvador's Country Ceiling of 'B'. El Salvador's low rating also constrains the SRs of these banks, which have been revised to '4'. According to Fitch's criteria where country risks are high, subsidiary ratings may be capped at levels significantly below those which would be possible based on the parent's ability and propensity to provide support. Fitch's opinion regarding the ability and propensity of Agricola and Davivienda Sal respective parents has not changed. The agency's view reflects the high reputational risks for the banks' parents in the event of subsidiary default and that any required support would be manageable relative to the ability of their respective parents to provide it. VR Agricola's and Davivienda's VRs are highly influenced the operating environment. The sizable local franchises of Agricola and Davivienda (26% and 15% of the banking system assets, respectively) result in high exposure to changes in the operating environment, including the financial health of the government, as reflected by its sovereign rating. Fitch usually does not rate banks above the sovereign, especially with such a high level of sovereign credit risk. In Fitch's opinion, further deterioration of the operating environment may impact their asset quality and their funding and liquidity profile of these banks. Agricola's VR also factors in, with moderate importance, the bank's good asset quality, stable and diversified deposits, which comprise 27% of the customer deposits of the banking system, and its ample liquidity coverage, and robust although declining capital position. Davivienda's VR is moderately influenced by its modest profitability, aligned with industry average, sound but decreasing capital position, and adequate asset quality. Davivienda's funding profile is robust, also underpinned by a large and granular deposit base. AGRICOLA SENIOR TRUST'S LOAN PARTICIPATION NOTES The loan under the Senior Unsecured Loan Agreement ranks pari passu in right of payment to all of Agricola's existing and future senior indebtedness and is effectively subordinated to all of the bank's secured indebtedness with respect to the value of the assets securing such indebtedness and to all of the existing and future liabilities of its subsidiaries. The rating of the notes is aligned with the bank's IDR. NATIONAL RATINGS The National Ratings of Agricola, Davivienda and their senior local issuances, as well as the national ratings of IFBA, and IF Davivienda reflect the strength of the potential support they could receive from their parents respective, whose international ratings are several notches above the Salvadorian sovereign. RATING SENSITIVITIES IDRs and VR s Agricola's and Davivienda's ratings remain sensitive to changes to the Sovereign Rating and Country Ceiling of El Salvador. Changes to the banks' IDRs would mirror changes to El Salvador's country ceiling; in turn, changes to El Salvador's Sovereign Rating would also impact the banks' VRs. SUPPORT RATINGS: Support ratings could be upgraded in a scenario of an important enhancement of the operating environment that conducts a change in Fitch's assessment on the shareholders' propensity to provide support to their respective subsidiaries in El Salvador. AGRICOLA SENIOR TRUST: Agricola Senior Trust's ratings are aligned with Agricola's IDR. Changes in the latter will trigger the same rating action on the Trust's ratings. NATIONAL RATINGS National ratings are at the top of the national rating scale reflecting the strength of the potential support Agricola, Davivienda, IFBA and IFDavivienda could receive from their parents; hence, there is no upside potential. A national ratings downgrade is unlikely given the relative strength of the parent. Fitch has taken the following rating actions: Banco Agricola, S.A. --Long-Term IDR upgraded to 'B' from 'B-'; Outlook Stable; --Short-Term IDR affirmed at 'B'; --Viability Rating upgraded to 'b-' from 'ccc'; --Support Rating upgraded to '4' from '5'; --National Long-Term Rating affirmed at 'AAA(slv)'; Outlook Stable; --National Short-Term Rating affirmed at 'F1+(slv)'; --Senior unsecured National Long-Term Rating affirmed at 'AAA(slv)'; --Senior secured National Long-Term Rating affirmed at 'AAA(slv)'. Agricola Senior Trust --Loan participation notes upgraded to 'B/RR4' from 'B-/RR4'. Inversiones Financieras Banco Agricola, S.A. --National Long-Term Rating affirmed at 'AAA(slv)'; Outlook Stable; --National Short-Term Rating affirmed at 'F1+(slv)'. Banco Davivienda Salvadoreno, S.A. --Long-Term IDR upgraded to 'B' from 'B-'; Outlook Stable; --Short-Term IDR affirmed at 'B'; --Viability Rating upgraded to 'b-' from 'ccc'; --Support Rating upgraded to '4' from '5'; --National Long-Term Rating affirmed at 'AAA(slv)', Outlook Stable; --National Short-Term Rating affirmed at 'F1+(slv)'; --Senior secured National Long-Term Rating affirmed at 'AAA(slv)'; --Senior unsecured National Long-Term Rating affirmed at 'AAA(slv)'; --Senior secured National Short-Term Rating affirmed at 'F1+(slv)'; --Senior unsecured National Short-Term Rating affirmed at 'F1+(slv)'. Inversiones Financieras Davivienda, S.A. --National Long-Term Rating affirmed at 'AAA(slv)'; Outlook Stable; --National Short-Term Rating affirmed at 'F1+(slv)'. Contact: Analysts Monica Ibarra (Lead for Agricola, Agricola Senior Trust and Davivienda Sal, Secondary for Inversiones Financieras Davivienda and Inversiones Financieras Banco Agricola) Director +52 81 8399-9150 Fitch Mexico, S.A. de C.V. Prol. Alfonso Reyes 2612 Monterrey, N.L. Mexico Marcela Galicia (Lead for Inversiones Financieras Banco Agricola, Secondary for Agricola) Director +503 2516 6616 Mario Hernandez (Lead for Inversiones Financieras Davivienda and Secondary for Davivienda Sal) Associate Director +503 2516 6614 Committee Chairperson Alejandro Garcia, CFA Managing Director +1-212-908-9137 Summary of Financial Statement Adjustments Pre-paid expenses were re-classified as intangibles and deducted from Fitch Core Capital. Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: benjamin.rippey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Country-Specific Treatment of Recovery Ratings (pub. 18 Oct 2016) here Future Flow Securitization Rating Criteria (pub. 13 Sep 2017) here Global Bank Rating Criteria (pub. 25 Nov 2016) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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